Inequity aversion and fair selling

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

34 Scopus Citations
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Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)77-89
Journal / PublicationJournal of Marketing Research
Volume52
Issue number1
Publication statusPublished - 1 Feb 2015
Externally publishedYes

Abstract

This research investigates optimal selling strategies and equilibrium welfare implications in markets with buyer inequity aversion. When buyers care about their surplus relative to seller profits but are uncertain about seller costs, buyers' fairness perceptions and, thus, their willingness to pay may be malleable and susceptible to seller influence. If a seller's optimal behavior (e.g., pricing) is not completely unvarying in variable costs, buyers can rationally make inferences about seller costs from observed seller behavior. Consequently, buyers' fairness perceptions and their willingness to pay can influence, and be influenced by, optimal selling strategies. The study characterizes a fair selling equilibrium in which optimal seller behavior and buyer perceived fairness are interactively derived. The author shows that seller ex ante profit may increase as more buyers become inequity averse. In addition, buyer ex ante surplus can be nonmonotonically influenced by an increase in the number of fair-minded buyers or in the degree of inequity aversion. These counterintuitive results pinpoint the importance of investigating the strategic interaction between buyer fairness perceptions and selling strategies. Finally, the basic model is extended to examine how the fair selling equilibrium may be influenced by cost disclosure, buyer dynamic learning, and seller competition. © 2015, American Marketing Association.

Research Area(s)

  • Behavioral economics, Distributional fairness, Inequity aversion, Pricing, Reference price

Bibliographic Note

Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to lbscholars@cityu.edu.hk.

Citation Format(s)

Inequity aversion and fair selling. / Guo, Liang.
In: Journal of Marketing Research, Vol. 52, No. 1, 01.02.2015, p. 77-89.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review